Monthly Archives: August 2011

Consumer Confidence Numbers Rattles Asia Markets- A Little

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In overnight trading Asian markets could not decide what to do, so they did very little. Typical for August out in front of the September storm.

The horrendous consumer confidence number shook the markets a little, but that was replaced with some optimism that the FED might take action to stimulate the economy.

Here’s your recap of a few news items out of China: 

  • The Shanghai A shares were up .04% on the day, and the B shares up .23% on the day in rather light trading.
  • Web site “All Things Digital” carries an article today highlighting the move of American social and mobile businesses to China. Rising American companies are seeing China as the “3rd” frontier for expansion. They point out nearly all the growth in Fortune 11 companies is coming from China. Incomes are rising in China. Chinese consumers are spending, and the demographics of the internet just keep getting better. 70% of the world’s virtual goods sales in 2010 occurred in Asia.
  • George Greig, the manager of the William Blair International Growth Fund, is becoming more cautious on emerging markets as a whole. He sees slowing demand from the US and Europe as having an effect, and is worried about a real estate bubble bursting in China.
  • Respected economist Qiao Yongyuan was out with a forecast of 5.4% to 5.6% rise in the CPI, which suggests inflation has peaked and will slow. He sees the PPI peaking at 7.3% in August, and then heading down thanks to lower oil prices and slowing demand for manufactured goods.
  • Yan Ji, HSBC analyst, says the Chinese markets will continue to slump for and will continue to head downward in the short term. He believes the Chinese government will continue its tightening regime. The Shanghai composite index has fallen 8.6% this year, and 14% last year.
  • Chinese Premier Wen Jiabao said reining in consumer prices remained Beijing’s priority.
  • A study recently completed by the Julius Baer Group Ltd. concludes China will have half of Asia’s millionaires by 2015.
  • That’s all for today. Hopefully there will be a lot more colorful stuff after we get into September.

Another Sleepy August Day in China – Part II

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Not much new out of China to go over today. It’s another sleepy day August day as US traders move to square up positions for month end and the US consumer confidence numbers fall to 45- the lowest since early ’09 and absolutely abysmal. The muted response in the market suggests this consumer confidence number was already priced in.

Here’s some brief news from China overnight: 

  • The Shanghai A shares were down .38%, the Bs down .02% in light trading.
  • JP Morgan get in line with all the other major IB firms and lowers its target for China growth this year. Jing Ulrich, a fairly big name in China investing at JP Morgan, puts China growth to 8.5%.
  • A report out on China Apparel spending notes spending on China apparel domestically has tripled in the last decade. Apparel manufacturers are focusing in on these areas: more spending on apparel by younger generations, by women, and more heavy spenders in lower-tier cities – that will help companies to adapt their strategies in response to new consumer demands over the coming decade.
  • The LA Times carried an article yesterday featuring China activist and critic Ai Weiwei – a Chinese artist who is very vocal and highly critical of Beijing’s uncontrolled growth. He is also highly critical of the judicial system in China.
  • The Economic Times reports China is once again out stating it is unlikely it will meet inflation targets this year. High commodity prices and an influx of global money into the country continues to put pressure on food prices.
  • On a final note- it turns out the Chinese Communist party is not a big fan of Lady Gaga. The government blacklisted 100 current pop culture songs last week, and Lady Gaga led the pack with 6 songs blacklisted from her latest album. I’m sure she’s very proud.

A Sleepy Monday In Late August for China

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  • It’s a sleepy Monday morning on what is traditionally a very slow week in the markets. The news is dominated by Hurricane Irene, and the images out of Vermont are heartbreaking. The rest of the Eastern Seaboard seems to have handled it very well.

  • In Monday trading, the China markets sold off a bit. The Shanghai A shares gave back 1.36%, and the B shares 1.15%. The A shares seem to be trapped in a range between 2640 and 2740 for now.
  • The Wall Street Journal carried an article written by Yukon Huang of the Carnegie Endowment. He suggests China economic numbers are badly skewed by two major factors- the amount of low end household spending that occurs in the “underground” economy in order to avoid taxes, and the government expenditures which, in China, act almost like household expenses. He believes middle class consumption is grossly understated in China.
  • Bank of America economists Lu Ting forecasts China will be tightening bank reserve ratios once again in September. Short term- probably a negative for the markets, but longer term there’s nothing more important than bringing inflation under control.
  • China industrial profits rose 28.3% in the first 7 months of 2011 according to the National Bureau of statistics.
  • The Financial Times reports solid profits from China’s oil industry paves the way for further off shore investment.
  • That’s enough for today. More tomorrow.

Hu, Unlike the Rest of the World, Is Confident in Europe

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  • Trading in China overnight was pretty lackluster. It’s “All Quiet on the Western Front” in front of Bernanke’s comments out of Jackson Hole today and the hope for some sort of QE3 stimulus package.
  • The Shanghai A shares were down .09%, surrendering very little of Thursday huge gain. The B shares were down .01%.

  • President Hu Jintao is jawboning up Europe in a meet and greet with French President Nicloas Sarkozy at the Great Hall in Beijing. China has about $3 trillion in Euro assets- about 25% of its foreign currency investment.Critics believes Sarkozy’s surprise visit is more about politics and winning his next election. The NDRC’s Wang says it is unlikely China will increase its holdings of EU government debt anytime soon. Sarkozy needed to “kiss the ring” to make sure they don’t sell a bunch of it.

  • Michael Pettis, and economics professor at Peking University, suggests weak foreign demand for Chinese manufactured goods could force a quicker rebalancing of the Chinese economy to one that moves from export depended to something more like the US where the consumer is 70% of GDP. Household consumption is only 34% of GDP in China. In order to bring household consumption to 40% of GDP in 5 years, it would require a growth rate of 11-12%.
  • Zhang Ping- chairman of the National Development and Reform Commission, was out talking about inflation, and warning it will be tough to rein in near term. ON the good news side, he also said the Bank of China would refrain from further interest rate hikes while the world economies remained unstable.
  • The President of one of the largest banks in China is out suggesting China banks should not keep tapping the equity markets to raise funds. China’s largest banks have sold $65 billion in equity this year.
  • That’s it for this week. We’re closing in on the end of Summer, and hopefully the idiots in Europe will get back to work and agree on some measures to shore up their sovereign debt. In the meantime, be careful of September in the market- it can be one of the historically toughest months.

Buffet Loves B of A

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  • There’s limited news flow out there, and stocks are trading very light volume. All then news flow is US- Buffet puts $1 billion into BofA, Google buys Motorola, Gold is getting clobbered.

  • In overnight trading, the China markets were very strong with the Shanghai “A” shares up 2.82% and the B shares up 2.34%
  • The Wall Street Journal features an article that points out China consumption numbers don’t match with a China “implosion”.
  • In a move to further “open its borders” to international investors, China daily carries an article today suggesting in September, the Central Government will change to regulations and make it easier for foreign investors to buy and sell RMB from outside the country.
  • If this is true, this might accommodate China small caps, many of whom would like to do major buy backs of their shares, but have difficulty moving their cash out of the country to brokerage accounts where the transactions can take place.
  • The NY Times reports China is going to have a hard time “rebalancing” its economic growth away from a dependence on the manufacture of goods for exports and government sponsored infrastructure build out to a consumer driven economy wherein it benefits China to allow the RMB to strengthen.
  • There’s a great lesson for investors on Apple shares today. The next time you read “it’s all priced in”, think of Apple. Steve Jobs finally tendered his resignation yesterday afternoon due to health concerns, and the stock is only down 2%. I know it’s not China, but if you’re looking for a cheap stock, consider AAPL. Obviously, Jobs resignation was all priced in, and you can now buy the greatest tech growth stock in the world for about 7x this year’s earnings. This is a great stock to own and sell covered calls against.

China Stats Fuel Big Wall Street Rally

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Sorry for the late post today. I was up too late last night to get an early start on the day. Here’s the news out of China.

  • In overnight trading, the major China indexes dropped a bit after Wall Street’s huge run up. The Shanghai A shares were off .51%- the Bs off .38% in lackluster trading.
  • BIDU was up about $10 in trading yesterday. Subscribers were able to sell calls against their position for the 3rd time after two profitable trades in the last two weeks. Subscribe if you want to learn about this.
  • Yesterday’s 300 point rally on Wall Street was fueled by perceptions there could be a “QE3″ coming out of the economic meeting in Jackson Hole this week. However, China also played a big part in fueling the rally. A manufacturing report out of China showed moderate slowing, but still enough manufacturing to maintain GDP growth in the 8% to 9% range.
  • Commodities were all higher on the news- oil and copper leading the way.
  • Yesterday it was widely reported China has now surpassed the US as the largest consumer of PCs in the world. 18.5 million PCs were sold in China in Q2 vs 17.7 million shipped to the US. China is expected to consume 85.1 million units next year compared to 76.6 million for the US.
  • Harvard Economist Martin Feldstein believes the Chinese will allow the RMB to rise more rapidly over the next 12 months than it has in the past 12. Feldstein believes this will mitigate the risks in China’s foreign investments, and reduce the costs of imports, thereby reducing inflation.
  • One final note- VP Joe Biden, who has been on a trip to China to reassure the Chinese our bonds are good, not surprisingly goofed up the numbers on our treasuries. In a speech, he claimed we had good reason to watch out for our bonds as the US owns 85% of them- this is simply wrong. We only own 69%. China holds 8%- he got that right. Way to go Joe.

Barron’s Bullish on China

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  • China markets were up in overnight trading, being fueled by a moderate decline in the China Manufacturers purchasing index. The Shanghai A shares were up 1.48%, and the B Shares were up .78%.
  • Think there’s no consumer growth in China? Think again. China Telecom reports Q2 profits rose 12% as its mobile phone subscriber base increased by 50%. The stock was up 4.8% on the news in Hong Kong.
  • Markets are firming up very tepidly globally on hopes the Federal Reserve will announce some sort of QE3 program to shore up the US economy.
  • The Chinese Purchasing Manager’s index rose slightly over July – from 49.3 to 49.8. A reading below 50 indicates contraction, but the slight improvement suggests a soft landing.
  • China has made investments in the production of oil in Libya. And, while China has never had a strong relationship with the nearly ousted Gaddafi, they have been supporting the rebel cause. One rebel faction warned China could lose its assets through nationalization, and the Chinese retorted with harsh words.
  • This weekend’s Barron’s cover article suggests it’s Time to Buy Emerging Markets after a 20% drop in China, Brazil, and India-Author Chris Williams notes their currencies are holding up against the dollar and the euro, their balance sheets are strong, and they’ve already completed their deleveraging cycle. Prices are also low as $7.7 billion came out of emerging market funds in August alone.
  • Barron’s also reports legendary and long term Fidelity Fund manager Mark Mobius, a pioneer of investing in China, India, and Russia, is buying up stocks that relate to consumer spending.

12th Five Plans Minimizes China Dependence on Global Macro Picture

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  • In overnight action, the Shanghai A shares dropped .68%, and the B shares dropped 1.8%. The B shares are typically more volatile.
  • Going long BIDU and selling covered calls to generate income. If you don’t understand how to generate income from your positions, sign up for the newsletter and read this past weekend’s edition.
  • Fan Gang- advisor to the China Central Bank monetary policy committee, in speech to 5th annual bankers conference in Beijing, says no double dip- just slower growth. He says China’s main growth driver will not be effected.
  • The 12th five year plan calls for reducing growth to 7%, empowering citizens to purchase more goods, raise the minimum wage, become more creative by developing industries like biotech and electric vehicles rather than simply be the world’s manufacturer, and has a major focus on reducing pollution and stabilizing the energy supply.
  • 78% of over 500 China companies that have provided revenue and earnings forecasts for the year are forecasting both quarter over quarter growth, and year over year growth according to an article at Xinhua
  • China Construction Bank- one of the largest banks in China, announce Q2 profits up 31%

Euro Banks Bash Equities: August 18

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  • I woke up a bit late today to find stocks getting absolutely pounded on more negative banking news out of Europe. The DOW is down 500 points today in one fell swoop. Apparently, one European bank borrowed a bunch of money from he EUC, and now all the Euro banks are going out of business, which will have a tremendous spill over effect to the US banking system.
  • The VIX is back over 40, which is a buying opportunity to me.
  • The Shanghai As were down 1.5% overnight, and the Bs were down 1.17%. The US markets are down 3% to 5%, so China is not yet as damaged as other global equities.
  • While this sell off is just as distressing as others I’ve seen in the past, I don’t see much volume in the China small caps, which suggests the shareholder bases at these levels are both patient and strong.
  • Top money manager Raijiv Jain, a very successful mutual fund manager, says he is avoiding China banks. He believes they have made many loans on overpriced real estate, and big losses might be out in the future.
  • Both Morgan Stanley and Deutshebank have cut GDP growth in China for 2010 to 8.7% and 9% respectively. I would not view this as negative news as inflation is the big problem in China, and a cooling economy is not a bad problem
  • Coca Cola is planning to invest $4 billion in China over the next 3 years for expansion.
  • Demand for gold in China surged 44% in Q2 reports Bloomberg

 

Biden Answers for $1.7 Trillion: News From China August 17

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  • In  overnight trading, the Shanghai A shares were down a moderate .27%- the B shares .6% in light trading.
  • VP Joe Biden is visiting China now and will have to answer to the Chinese about the safety of their $1.17 trillion they are holding in US Treasuries. Biden has the task of convincing the Chinese that American politicians have the will to deal with the deficit. At the same time, he also has he task of trying to convince the Chinese to allow their currency to float up- making American goods cheaper to the Chinese. The Yuan has recently hit the highest level since 1997 last week. If the Chinese were to start unwinding their position in Treasuries rapidly, it would be devastating to interest rates as a glut of supply would cause bonds to fall, driving interest rates up.
  • The largest private equity firm in the world- Carlyle Group- is continuing to invest heavily in China. Carlyle has invested $200 million in Haier- an appliance manufacturer, in addition to stakes in Animal feed, fishing, and infant formula companies.
  • Consumer Confidence numbers remain high in Hong Kong
  • FDI (foreign direct investment) rose 19.8% in China. $8.3 billion in foreign investment flowed into the country- a 19.8% increase over July ’10.